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Mineral Sands Boom in Australia; Best 2011 Stock

Australia’s best performing stock this year, is the mineral sand miner Iluka Resources which has seen shares jump nearly five-fold in the past 17 months. Iluka Resources is a mining company involved in the mining and processing of titanium based and zircon products. The company was formed in July 1998, in a merger between Westralian Sands and the titanium mineral business of Renison Goldfields Consolidated. Iluka Resources mines heavy mineral sands and separates the concentrate into its individual mineral constituents rutile, ilmenite, leucoxene and zircon. In 2006, Iluka Resources was the largest supplier of zircon to the world market with a market share of 35% and was the second largest supplier of Titanium Dioxide and maintained a 20% share in the supply of Titanium Dioxide to the world market.

While Iluka is the world’s top producer of zircon, with about a third of the global market, other companies hold mineral sands resources yet to be developed which could offer investors a way to tap the “boom.” Those closest to getting new projects underway, such as Mineral Deposits Ltd (MDL.AX), Base Resources (BSE.AX) and Gunson Resources (GUN.AX), are poised to benefit the most from strong prices if the boom lasts as long as analysts now forecast. China is said right now, to have a lock on exotic rare earths that go into mobile phones and stealth fighters, but that real money is also being funneled into projects in Australian mineral sands that go into bathroom tiles and pacemakers.

“We do expect to see existing operators like Iluka make stronger margins on stronger prices because they’ve spent the capital required,” said Andrew Pedler, an analyst at broker Wilson HTM. But analysts are careful of sounding too bullish about an industry that is not as transparent as other commodity markets. “In all probability there is some further upside in commodity prices, and therefore some further upside in share prices,” said Pedler. Analysts’ forecasts in recent memory, have struggled to keep up with price hikes over the past year for the key mineral sands products zircon, ilmenite, rutile and synthetic rutile that are used in everything from paints, bathroom wares and kitchen tiles to nuclear reactors and cardiac pacemakers.

Customers for mineral sand miners, which include the likes of DuPont and Huntsman Corp., expect to pass these higher ore costs through to their end users like paint makers as demand picks up. Iluka, last week, said that it expects to achieve a 35-40 percent increase to about $2,200 per tonne in zircon prices for the third quarter over the second quarter. Iluka also announced 70-75 percent increases in rutile prices for the second half of 2011 over the first half to around $1,3280 per tonne and a similar hike for synthetic rutile. “We believe that though there are fast escalating ore price increases that will be coming to our industry, we believe that… we’ll be able to absorb these without having a detrimental effect to our earnings going forward in 2011,” Huntsman CEO Peter Huntsman said at a conference last week.